Question

Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2020, and no dividends were declared in 2020 or 2021. In 2022, Nottebart declares a cash dividend of $300,000.

How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

Answer 1

The computation is shown below:-

Step-by-step explanation:

a. If preferred stock is non-cumulative

Dividend to preferred stockholders = 10,000 × $100 × 6 %

= $60,000

Dividend to common stockholders = $300,000 - $60,000

= $240,000

b If preferred stock is cumulative

Dividend to preferred stockholders = 10,000 × $100 × 6 % × 3

= $180,000

Dividend to common stockholders

= $300,000 - $180,000

= $ 120,000

Now,

Situation Dividend to preferred Dividend to common stockholders stockholder

a). If preferred stock is

non-cumulative $60,000 $240,000

b). If preferred stock

is cumulative :- $180,000 $120,000